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Thursday, 16 October 2014

Commercial realty gets a boost as companies gear up to cash in on “Acche Din”

Companies across industries such as IT,
consultancy and e-commerce have begun leasing and buying office space in
expectations of an economic boom under a stable central government — a
development that will rejuvenate the job market.

Top property consultancies in the country such as Cushman &
Wakefield, CBRE, JLL, Knight Frank and DTZ say they have mandates from
various corporates to lease about 40 million sq ft of space in the top
seven cities this year. With firms planning to use more than half this
space for expansion, conservative estimates show that they will create
around 350,000 jobs in the process.

“There is a sense of urgency among clients today,” said Viral Desai,
director – office at Knight Frank. “While not much has changed in their
business so far, with a new government in place, they are preparing for
growth. No one wants to miss the bus,” he added. Consulting firm KPMG
recently leased over 700,000 sq ft of space in Bangalore and there is
buzz in the market that its peers EY, Deloitte and PwC are also looking
to ramp up. Many of the big Japanese and Korean firms are looking for
space, though demand from the IT industry — doing well on the back of a
US recovery — is still the biggest.

Accenture, for example, is looking for about one million sq ft of
space in Bangalore, according to property consultants. Another big
segment vying for space is e-commerce which has seen multiple rounds of
consolidation and entry of big global players such as Amazon and eBay
over the last one year, with players adding offices and warehouses on
hopes of a boom in consumer spending.

Bangalore-based RMZ said it has already leased 3.25 million sq ft in a
business park in the city to corporates such as SAP, Morgan Stanley,
ANZ and Honeywell in the last few months. While large scale leasing
might not be back just yet, the first signs are here.

“Corporates, both Indian and foreign, foresee 2016 as a big year and
they are starting to plan for that growth today,” said Bhumesh Gaur,
co-chair at India chapter of CoreNet Global, an association of corporate
real estate professionals whose members include over 100 India and
foreign corporates. A landslide victory for BJP-led National Democratic
Alliance in the general elections triggered the new-found excitement in
the corporate sector. “In our conversations with companies till a few
months ago they were more interested in maintaining status quo as they
were uncertain.

There were no large futuristic calls on expansions. That’s changing
now,” said Anckur Srivasttava, chairman of GenReal Property Advisers.
Srinivasan Gopalan, chief operating officer at Mumbai-based developer
Wadhwa Group, said the company’s leasing pipeline has doubled since the
election results to nearly 400,000 sq ft now. “Enquiries have gone up
substantially,” he said.

The development will boost the job market, which has slowed down due
to subdued economic growth that hit production and consumption.
According to an ET Intelligence Group analysis of close to 250 companies
belonging to the S&P BSE 500 index, employment growth slowed to
3.5% in FY13 from 5.7% in the year before and 6.4% in FY11. There could
be an improvement this fiscal with corporates planning to use about 25
million sq ft of office space they plan to take on lease in top cities
such as Gurgaon, Bangalore, Pune, Hyderabad and Chennai for expanding
their businesses. “There is a lot of positivity in the environment now
as challenges of project approvals and capital inadequacies are being
done away with.

There is significant expectation of de-congestion of growth from now
on. Overall growth expectation for the job market in the next one year
is very bullish,” said Rituparna Chakraborty, senior vice president at
HR consultancy firm Team-Lease Services. “The challenge for India now is
not job creation but finding the right talent and skillset,” he added.
Meanwhile, rising demand for office space may lead to supply shortage
and high rentals. Over the last few years, as demand for office space
declined, as a kneejerk reaction most builders started to defer new
office projects and shelved many projects.

According to JLL, across the top seven cities, expected total supply
of grade A office space is only about 31 million sq ft in 2014 compared
to 44 million sq ft in 2011. “In most cities, enhanced interest from
companies has not kept pace with commercial property developers with
lack of new launches. The rentals are expected to move up by 5% to 10%
this year,” said Ashutosh Limaye, head of research at JLL India.
Srivasttava of GenReal Property said he expected office rentals to keep
rising constantly over the next five years.